'Below expectations': Target, Kmart disappoint for Wesfarmers

Australia's second-largest retail company Wesfarmers' profit surged in the 2019 financial year on the back of strong performances from Bunnings and Officeworks, though weak sales at Kmart and Target overshadowed the positive result.

Target continues to be a problem for Wesfarmers.Credit:Justin McManus

NPAT from continuing operations for the 12 months to June 30 was up 13.5 per cent at $1.9 billion, and revenue from Wesfarmers' continuing operations was up 4.3 per cent to $27.9 billion.

This sale, combined with the sale of Kmart’s tyre and auto business, Wesfarmers’ stake in the Bengalla mine and its indirect interest in Quadrant Energy, saw the company book $5.5 billion in net profit after tax when taking discontinued operations into account.

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Overall earnings before interest and tax (EBIT) jumped 12.2 per cent for the financial year to $2.97 billion, thanks largely to a "solid" performance from hardware giant Bunnings, which saw EBIT increase 8.1 per cent to $1.62 billion.

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Officeworks increased EBIT 7.1 per cent to $167 billion, and combined the two retailers drove 76 per cent of the company's profit growth, however earnings growth for both have slowed since the 2018 financial year.

Department stores growth slows as offerings "too similar"

The company's department store division of Kmart and Target took a hit, with EBIT dropping 13.7 per cent to $540 million. Like-for-like sales for Kmart were flat while Target's dropped 0.8 per cent.

Wesfarmers chief executive Rob Scott said performance for the department stores was "below expectations" and flagged a repositioning of the Target brand, admitting the two had been "too similar" over the past decade.

The company noted Kmart and Target's sales momentum had moderated throughout 2019, but Mr Scott said broader retail conditions were not as negative as prophecised.

Wesfarmers managing director Rob Scott.Credit:Edwina Pickles

"I wouldn't necessarily say that the consumer environment is negative," he said.

"While there might be some challenges out there in some segments, the consumer market isn't too bad, and we've been able to generate growth."

Trade tensions limit outlook

Wesfarmers is expecting global trade tensions to have an effect on the company and the Australian economy more broadly, however, with Mr Scott saying it left him "cautious" on providing much outlook for 2020.

"With the concerns around trade tensions, the slowing of growth in some international markets, I think it would be wise to be somewhat cautious around the outlook," he said.

As part of its limited outlook, Mr Scott indicated actions the company had taken to reposition its portfolio had "significantly strengthened" its balance sheet.

The Kidman acquisition is in the final stages of approval, however Wesfarmers announced last week it would no longer pursue its controversial bid for Lynas.

Further acquisitions in the coming 12 months are likely on the cards, however the chief executive noted he would not be pursuing acquisitions just for the sake of it with the business having many "internal opportunities" for investment.

"From an investment and acquisition point of view, we're always quite opportunistic and discerning around the investments we make," Mr Scott said.